Performance funding in higher education is intended to incentivize increased degree production at American colleges and universities by linking state funds directly to institutional outcomes. However, many critics suggest that such funding arrangements create systems of “winners and losers” by rewarding some institutions over others. Using a difference-in-difference methodology, this article explores the impact of performance funding on state appropriations and investigates the heterogeneous treatment effects across institution types. I find that performance funding consistently benefits high-resource institutions and imposes financial burdens on low-resource institutions. The theory of social construction and policy design illuminates the findings.
AlexanderF. K. (2000). The changing face of accountability: Monitoring and assessing institutional performance in higher education. The Journal of Higher Education, 71, 411–431.
AngristJ. D.PischkeJ.-S. (2015). Mastering ‘metrics: The path from cause to effect. Princeton, NJ: Princeton University Press.
4.
BirdsallC. (2018). Performance management in public higher education: Unintended consequences and the implications of organizational diversity. Public Performance & Management Review, 41, 669–695. doi:10.1080/15309576.2018.1481116
5.
BurkeJ. C. (2001). Paying for performance in public higher education. In ForsytheD. (Ed.), Quicker, better, cheaper? Managing performance in American government (pp. 417–451). Albany, NY: Rockefeller Institute Press.
DelaneyJ. A.DoyleW. R. (2011). State spending on higher education: Testing the balance wheel over time. Journal of Education Finance, 36, 343–368.
8.
DelaneyJ. A.KearneyT. D. (2015). Guaranteed tuition policies and state general appropriations for higher education: A difference-in-difference analysis. Journal of Education Finance, 40, 359–390.
9.
DoughertyK. J.JonesS. M.LahrH.NatowR. S.PheattL.ReddyV. (2016). Performance funding for higher education. Baltimore, MD: Johns Hopkins University Press.
10.
DoughertyK. J.NatowR. S. (2015). The politics of performance funding for higher education: Origins, discontinuations, and transformations. Baltimore, MD: Johns Hopkins University Press.
11.
DoughertyK. J.NatowR. S.JonesS. M.LahrH.PheattL.ReddyV. (2014). The political origins of performance funding 2.0 in Indiana, Ohio, and Tennessee: Theoretical perspectives and comparisons with performance funding 1.0. New York, NY: Community College Research Center, Columbia University.
12.
DoughertyK. J.NatowR. S.VegaB. E. (2012). Popular but unstable: Explaining why state performance funding systems in the United States often do not persist. Teachers College Record, 114(3), 1–41.
13.
DoughertyK. J.ReddyV. (2011, December). The impacts of state performance funding systems on higher education institutions: Research literature review and policy recommendations (CCRC Working Paper No. 37). New York, NY: Community College Research Center, Columbia University.
14.
DrukkerD. M. (2003). Testing for serial correlation in linear panel-data models. The Stata Journal, 3, 168–177.
15.
DynarskiS. (2002). The behavioral and distributional implications of aid for college. The American Economic Review, 92, 279–285.
GàndaraD. (2016). Constructing winners and losers: An analysis of higher education performance funding policy designs in Colorado and Texas (Unpublished doctoral dissertation). University of Georgia, Athens.
18.
GàndaraD.RippnerJ.NessE. C. (2017). Exploring the “how” in policy diffusion: National intermediary organizations’ roles in facilitating the spread of performance-based funding policies in the states. The Journal of Higher Education, 88, 701–725.
HillmanN. W.CorralD. (2017). The equity implications of paying for performance in higher education. American Behavioral Scientist, 61, 1757–1772.
21.
HillmanN. W.FryarA. H.Crespin-TrujilloV. (2018). Evaluating the impact of performance funding in Ohio and Tennessee. American Educational Research Journal, 55, 144–170.
22.
HillmanN. W.TandbergD. A.FryarA. H. (2015). Evaluating the impacts of “new” performance funding in higher education. Educational Evaluation and Policy Analysis, 37(4), 501–519.
23.
HillmanN. W.TandbergD. A.GrossJ. P. K. (2014). Performance funding in higher education: Do financial incentives impact college completions?The Journal of Higher Education, 85, 826–857.
24.
HoveyH. A. (1999). State spending for higher education in the next decade: The battle to sustain current support. San Jose, CA: State Policy Research.
25.
ImbensG. M.WooldridgeJ. M. (2008, August). Recent developments in the econometrics of program evaluation (Working Paper No. 14251). Cambridge, MA: National Bureau of Economic Research.
26.
JaquetteO.ParraE. E. (2014). Using IPEDS data for panel analyses: Core concepts, data challenges, and empirical applications. In PaulsenM. B. (Ed.), Higher education: Handbook of theory and research (Vol. 29, pp. 467–533). Dordrecht, The Netherlands: Springer.
27.
JonesS. (2015). The game changers: Strategies to boost college completion and close attainment gaps. Change: The Magazine of Higher Learning, 47(2), 24–29.
28.
JonesT.JonesS.ElliottK. C.OwensL. R.AssaloneA. E.GàndaraD. (2017). Outcomes based funding and race in higher education: Can equity be bought?New York, NY: Springer.
29.
Kahn-LangA.LangK. (2018, July). The promise and pitfalls of differences-in-differences: Reflections on “16 and pregnant” and other applications (Working Paper No. 24857). Cambridge, MA: National Bureau of Economic Research.
30.
KaneT. J.OrszagP. R.ApostolovE.InmanR. P.ReschovskyA. (2005). Higher education appropriations and public universities: Role of Medicaid and the business cycle. Brookings-Wharton Papers on Urban Affairs, 6, 99–146.
31.
KelchenR.StedrakL. J. (2016). Does performance-based funding affect colleges’ financial priorities?Journal of Education Finance, 41, 302–321.
32.
KoshalR. K.KoshalM. (2000). State appropriation and higher education tuition: What is the relationship?Education Economics, 8, 81–89.
33.
LaneJ. E.KivistoJ. A. (2008). Interests, information, and incentives in higher education: Principal-agent theory and its potential applications to the study of higher education governance. In SmartJ. C. (Ed.), Higher education: Handbook of theory and research (Vol. XVIII, pp. 141–179). New York, NY: Agathon Press.
34.
LiA. Y. (2018). Performance funding policy impacts on STEM degree attainment. Educational Policy. Advance online publication. doi:10.1177/0895904818755455
35.
LiA. Y.KennedyA. I. (2018). Performance funding policy effects on community college outcomes: Are short-term certificates on the rise?Community College Review, 46, 3–39.
36.
LowryR. C. (2001). The effects of state political interests and campus outputs on public university revenues. Economics of Education Review, 20, 105–119.
37.
McGuinnessA. C. (2016). State policy leadership for the future: History of state coordination and governance and alternatives for the future. Denver, CO: Education Commission of the States.
38.
McLendonM. K.HearnJ. C.DeatonR. (2006). Called to account: Analyzing the origins and spread of state performance-accountability policies for higher education. Educational Evaluation and Policy Analysis, 28, 1–24.
39.
McLendonM. K.HearnJ. C.MokherC. G. (2009). Partisans, professionals, and power: The role of political factors in state higher education funding. The Journal of Higher Education, 80, 686–713.
40.
McLendonM. K.MokherC. G.DoyleW. (2009). “Privileging” public research universities: An empirical analysis of the distribution of state appropriations across research and non-research universities. Journal of Education Finance, 34, 372–401.
41.
NessE. C. (2010). The role of information in the policy process: Implications for the examination of research utilization in higher education policy. In SmartJ. C. (Ed.), Higher education: Handbook of theory and research (pp. 1–49). Dordrecht, The Netherlands: Springer.
NessE. C.TandbergD. A. (2013). The determinants of state spending on higher education: How capital project funding differs from general fund appropriations. The Journal of Higher Education, 84, 329–357.
RabovskyT. M. (2012). Accountability in higher education: Exploring impacts on state budgets and institutional spending patterns. Journal of Public Administration Research and Theory, 22, 675–700.
47.
ReichG.MendozaA. A. (2008). “Educating kids” versus “coddling criminals”: Framing the debate over in-state tuition for undocumented students in Kansas. State Politics & Policy Quarterly, 8, 177–197.
RutherfordA.RabovskyT. (2014). Evaluating impacts of performance funding policies on student outcomes in higher education. The Annals of the American Academy of Political and Social Science, 665, 185–208.
50.
SchneiderA.IngramH. (1993). Social construction of target populations: Implications for politics and policy. The American Political Science Review, 87, 334–347.
TandbergD. A. (2006). State-level higher education interest group alliances. Higher Education in Review, 3, 25–49.
53.
TandbergD. A. (2007). Politics, budgetary tradeoffs, and state funding of public higher education (Unpublished doctoral dissertation). Pennsylvania State University, State College.
54.
TandbergD. A. (2010). Politics, interest groups and state funding of public higher education. Research in Higher Education, 51, 416–450.
55.
TandbergD. A.HillmanN. W. (2014). State higher education performance funding: Data, outcomes, and policy implications. Journal of Education Finance, 39, 222–243.
56.
TandbergD. A.HillmanN. W.BarakatM. (2014). State higher education performance funding for community colleges: Diverse effects and policy implications. Teachers College Record, 116, 1–31.
57.
UmbrichtM. R.FernandezF.OrtagusJ. C. (2017). An examination of the (un)intended consequences of performance funding in higher education. Educational Policy, 31, 643–673.
58.
WooldridgeJ. (2007). What’s new in econometrics? Lecture 10 Differences-in-differences estimation. Cambridge, MA: NBER Summer Institute.
59.
ZumetaW. (1998). Public university accountability to the state in the late twentieth century: Time for rethinking?Review of Policy Research, 15(4), 5–22.
60.
ZumetaW.LiA. Y. (2016). Assessing the underpinnings of performance funding 2.0: Will this dog hunt? Trends and issues. New York, NY: TIAA Institute.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
